Hong Kong Causeway Bay Shop Rents Set to Rise on Hysan Mall

Pedestrians pass by a Hysan Development Co. construction site in the Causeway Bay area in Hong Kong, China. Photographer: Dale de la Rey/Bloomberg

May 18 (Bloomberg) -- Hong Kong’s Causeway Bay, home to the
world’s third-most expensive shopping strip, is set for its
biggest facelift in almost two decades with a new mall that may
drive up rents in the area.

Hysan Development Co., the area’s biggest commercial
landlord, next year will complete a complex the size of 12
American football fields in the district’s biggest addition
since 1994, when Wharf Holdings Ltd.’s Times Square put the area
on the luxury retail map. About 45 percent of Hysan Place’s
retail space is already filled with tenants that may include
Apple Inc.

“2011 will probably be the year of Causeway Bay,” Nick
Bradstreet, Hong Kong-based head of leasing at Savills Plc, said
in an interview. “Hysan Place will bring huge interest to the
area. Rentals on a lot of the neighboring streets are going to
come up because of that.”

Increased spending by cashed-up Chinese tourists and the
addition of new shopping space will drive up prime street shop
rents in some parts of Causeway Bay, a former fishing village,
by as much as 50 percent this year, according to Jones Lang
LaSalle Inc., the world’s second-biggest commercial brokerage.
Causeway Bay’s Russell Street has the world’s third-most
expensive retail space after Manhattan’s Fifth Avenue and Avenue
des Champs-Elysees in Paris, according to Colliers International.

Hysan, which owns about 3 million square feet of office and
retail space in the area east of the Central district, is
scheduled to complete construction of the 710,000-square-foot
Hysan Place in the second quarter of 2012.

‘Robust’ Sales

Average rents at prime street retail shops in Causeway Bay
rose to HK$910 ($117) per square foot in the first quarter from
HK$833 in the fourth quarter of 2010, according to Savills.

“Rental in this area probably won’t go back to what you’d
consider reasonable in a conventional sense for a while,” Hysan
Chief Executive Officer Gerry Yim said in an interview. “Retail
rents reflect shops’ turnover and from what we see, businesses
in Causeway Bay are going to stay robust for a long time.”

Hysan is also completing the renovation of 26,000 square
feet of ground floor retail space at the 34-year-old nearby
Leighton Centre.

“The benefit of these renovations they’re carrying out
right now will begin to show down the years,” said Eva Lee, a
Hong Kong-based property analyst at Macquarie Securities Ltd.,
who recommends investors to buy the company’s shares. “With the
tight supply of both office and retail space, the opening of
Hysan Place is exceptional timing.”

Hysan shares rose 1.2 percent to HK$37.95 at the 4 p.m.
market close in Hong Kong, compared to a 0.8 percent advance in
the Hang Seng Property Index, which tracks the performance of
the city’s seven biggest developers and doesn’t include Hysan.

Fishballs to Gucci

Causeway Bay, a fishing village in the city’s early
colonial days, is now a bustling hub where fishball and juice
sellers, mobile phone shops, luxury watch retailers and local-designer brands are squeezed next to shopping malls that house
European luxury brands such as Gucci and Louis Vuitton, and
Japanese clothing and accessory chains including Muji and Uniqlo.
Times Square overlooks a meat, vegetable and fruit market.

“Hysan Place will attract a slightly different crowd to
the area” compared to Times Square and other malls owned by
Hysan, said Helen Mak, Hong Kong-based head of retail at
Colliers. “It’s catering more to the younger generation,
whereas many of the outlets selling luxury goods in the district
are aimed at mainland Chinese tourists.”

Apple is in negotiations with Hysan to open a store in
Hysan Place, according to a person with knowledge of the matter.
Apple will open a store in Hong Kong this year, Carolyn Wu, a
spokeswoman in Beijing for the Cupertino, California-based
company, said. She declined to specify the location.

Chinese tourists visiting Hong Kong jumped 26 percent to
22.7 million in 2010 from a year earlier, according to the
city’s tourism board. The figure reached a daily record of
122,893 on April 30 this year, according to the organization.

Russell Street

Prime street shop rents on Russell Street have increased 34
percent in the first quarter compared with a year earlier,
according to Savills, the U.K.’s largest publicly traded
property broker. Retail sales at the tenants in Times Square
rose 25 percent in 2010 on increased arrivals and spending by
Chinese visitors, according to figures from Wharf.

I.T Ltd., a Hong Kong clothier that retails fashion brands
including D&G and Fred Perry, in the first quarter opened a
four-story, 30,000-square-foot new store at One Hysan Avenue, a
building about a minute walk from Hysan’s headquarters.

Retail rents in Tsim Sha Tsui, a shopping and commercial
district on Hong Kong’s Kowloon Peninsula, last year climbed as
much as 25 percent after the opening of three new shopping malls
including New World Development Co.’s K-11 and Chinese Estates
Holdings Ltd.’s The One.

Hysan Place may have the same impact on shop rents in
Causeway Bay, starting with its nearby streets, according to
Savills, Colliers and Jones Lang.

Local Rents

Expectations of an increase in shopper traffic because of
Hysan Place, which will have 17 floors of shopping space and 15
floors of office space, is pushing rents up along neighboring
streets such as Kai Chiu Road and Pak Sha Road, according to
Jeannette Chan, head of retail for Hong Kong and Southern China
at Jones Lang. Rents in those streets may rise to HK$800 to
HK$1,500 per square foot a month this year, from HK$500 to
HK$1,000 currently, Chan said.

Causeway Bay is about a seven-minute subway ride from
Central. Hysan in 2010 derived 43 percent of its gross profit
from office rental and 41 percent from its 900,000 square feet
of retail space, according to its annual report.

“Shops without a very high turnover will be gone in the
long run,” said Hysan’s Yim from the company’s office on the
49th floor of the Lee Gardens Building, which overlooks the area.
“Recently a fruit-seller closed down and chances are that these
kinds of retailers won’t be back. The whole area is going
through another transformation.”